Learn the Facts About New York's Private Health Insurance Taxes and Their Effect on Employers

New York state imposes four taxes on employers and individuals who purchase health insurance. The taxes include a covered lives assessment that varies by region, a surcharge (sales tax) on health services, the section 332 assessment on insurers and a premium tax.

Covered lives assessment - The covered lives assessment is an annual flat surcharge (or tax) on all privately insured people in the state. Health plans are assessed according to the number of people they cover. The assessment is included in the individual and family premium and varies by the insured’s residence. When it was initiated in 1996, the covered lives assessment was intended to pay for graduate medical school expenses. Over time, increasing sums generated by the tax have been used for general fund obligations. Under the 2012-2013 budget, New Yorkers with private health insurance will pay $1.05 billion to the state for the covered lives assessment.

Surcharge on health services - A surcharge created by the state Health Care Reform Act of 1996 is collected from health plans in the form of a sales tax on certain hospital-based health services to help reimburse hospitals for losses incurred by bad debt and charity care. The surcharge applies to all members of self-insured and fully insured health plans. The initial surcharge rate was 8.18 percent in 1997 and yielded $517 million. In the 2012 – 2013 budget, the rate is 9.63 percent, yielding approximately $3.02 billion.

Assessment on insurers - The third levy, the Section 332 assessment finances New York State Department of Financial Services operations. It applies to all licensed insurers in the state (e.g., life, property and casualty, and health) and is based on premiums paid in New York state. Section 332 assessments do not apply to third-party administrators, out-of-state insurers or self-funded health plans. In the 2012 - 2013 budget, New Yorkers with private insurance are expected to pay $331 million to finance the New York State Department of Financial Services.

Premium tax - A 1.75 percent tax is applied to premiums paid by those purchasing commercial health insurance policies. The revenue from these for-profit insurers goes to the state’s general fund. In the 2012-2013 budget, the premium tax is projected to raise $406 million.